Question

(a)To what extent may auditors be held liable to compensate those who have suffered financial loss as a result of their negligent advice?

Addie is a share trader. Last week, he purchased a company's shares in reliance upon a copy of the auditors' report of the company. The company is a listed company. The report was compiled on the basis of some of the company's invoices the dates of which had been altered ('the Irregularity'). As a result, the report exaggerated the profit of the company and Addie suffered a loss from the transaction.

Before the report was made, the auditors were aware of the Irregularity. However, they did not make any inquiry or carry out an investigation of any kind about the Irregularity before they approved the report by signing it. In addition, the auditors mentioned nothing about the Irregularity in the report.

Required:

In relation to professional negligence:

(b)Advise the auditors as to whether they were negligent in preparing and approving the report.

(c)Assuming that the auditors were negligent, advise Addie as to whether he can recover his loss from the auditors.

What is the answer of part c?